SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential. For Use of the Commission Only (as permitted by Rule
14a-6(e) (2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
PERFORMANCE TECHNOLOGIES, INCORPORATED
--------------------------------------
(Name of Registrant as Specified in Its Charter)
N/A
---
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction
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(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
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[ ] Fee previously paid with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration No.:
(3) Filing Party:
(4) Date Filed:
Notes:
May 2, 2005
To Our Stockholders:
You are cordially invited to attend the 2005 Annual Meeting of the
Stockholders of Performance Technologies, Incorporated at the Monroe Golf Club,
located at 155 Golf Avenue, Pittsford, New York on Thursday, June 2 at 10 a.m.
local time.
The matters expected to be acted upon at the meeting are described in
detail in the attached Notice of Annual Meeting of Stockholders and Proxy
Statement. The Company's 2004 Annual Report, which is contained in this package,
sets forth important financial information concerning the Company.
A brief report will be made at the meeting of the highlights for the
year 2004, and there will be an opportunity for questions of general interest to
the stockholders.
We sincerely hope you will be able to attend the Annual Meeting, but if
you cannot do so, it is important that your shares be represented. Please sign,
date and return the proxy card in the enclosed return envelope, which requires
no postage if mailed in the United States. For some stockholders, information
regarding telephone and Internet voting is included in the proxy card
instructions.
On behalf of the officers and directors, I wish to thank you for your
interest in the Company and your confidence in its future.
Very truly yours,
/s/ John M. Slusser
John M. Slusser
Chairman of the Board
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
June 2, 2005
The Annual Meeting of Stockholders (the "Meeting") of PERFORMANCE
TECHNOLOGIES, INCORPORATED (the "Company") will be held at the Monroe Golf Club,
located at 155 Golf Avenue, Pittsford, New York 14534 on Thursday, June 2, 2005
at 10 a.m., local time, for the following purposes, which are more fully
described in the accompanying Proxy Statement:
1. To elect three nominees to the Board of Directors of the Company for a
three-year term.
2. To consider and act upon a proposal to ratify the appointment of
PricewaterhouseCoopers LLP as the Company's independent registered public
accounting firm for the fiscal year ending December 31, 2005.
3. To transact such other business as may properly come before the Meeting
or any adjournments thereof.
The Board of Directors has fixed the close of business on April 4, 2005 as
the record date for the determination of stockholders entitled to notice of and
to vote at the Meeting.
A Proxy Statement and Proxy Card are enclosed.
By Order of the Board of Directors,
/s/ Stuart B. Meisenzahl
Stuart B. Meisenzahl
Secretary to the Board
Dated at Rochester, New York
May 2, 2005
YOUR VOTE IS VERY IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING,
PLEASE PROMPTLY SIGN AND RETURN THE ENCLOSED PROXY CARD. FOR SOME STOCKHOLDERS,
INFORMATION REGARDING TELEPHONE AND INTERNET VOTING IS INCLUDED IN THE PROXY
CARD INSTRUCTIONS.
PERFORMANCE TECHNOLOGIES, INCORPORATED
205 Indigo Creek Drive
Rochester, New York 14626
May 2, 2005
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 2, 2005
GENERAL INFORMATION
This proxy statement is furnished to stockholders in connection with the
solicitation of proxies by the Board of Directors of PERFORMANCE TECHNOLOGIES,
INCORPORATED (the "Company") to be used at the Annual Meeting of Stockholders of
the Company, which will be held on Thursday, June 2, 2005 (the "Meeting"), and
at any adjournments thereof. This proxy statement and accompanying form of proxy
are first being mailed to stockholders on or about May 2, 2005. The proxy, when
properly executed and received by the Secretary of the Company prior to the
Meeting, will be voted as therein specified unless revoked by filing a written
revocation or a duly executed proxy bearing a later date with the Secretary
prior to the Meeting. A stockholder may also revoke his or her proxy in person
at the Meeting. Unless authority to vote for one or more of the director
nominees is specifically withheld, a signed proxy will be voted FOR the election
of the director nominees named herein and, unless otherwise indicated, FOR the
ratification of PricewaterhouseCoopers LLP as the Company's independent
registered public accounting firm for the fiscal year ending December 31, 2005.
The cost of soliciting proxies will be borne by the Company. In
addition to the solicitation by use of the mails, directors, officers or regular
employees of the Company, without extra compensation, may solicit proxies
personally, by telephone, e-mail, telegraph or facsimile transmission. The
Company has requested persons holding stock for others in their names or in the
names of nominees to forward soliciting material to the beneficial owners of
such shares and will, if requested, reimburse such persons for their reasonable
expenses in so doing.
VOTES REQUIRED
Stockholders may vote by mail, telephone or the Internet. For some
stockholders, information regarding telephone and Internet voting is included in
the proxy card instructions. The total outstanding shares of capital stock of
the Company as of April 4, 2005, the record date for the Meeting (the "Record
Date"), consisted of 12,852,679 shares of Common Stock, par value $.01 per share
(the "Common Stock"). Only holders of Common Stock of record on the books of the
Company at the close of business on the Record Date are entitled to notice of
and to vote at the Meeting and at any adjournments thereof. Each holder of
Common Stock is entitled to one vote for each share of Common Stock registered
in his or her name. A majority of the outstanding shares of Common Stock,
represented in person or by proxy at the Meeting, will constitute a quorum for
the transaction of all business.
Pursuant to the provisions of the Delaware General Corporation Law,
directors shall be elected by a plurality of the votes cast by the holders of
shares of Common Stock present in person or represented by proxy at the Meeting
and entitled to vote at the Meeting. Because directors are elected by a
plurality of the votes cast, withholding authority to vote with respect to one
or more nominees will have no effect on the outcome of the election, although
such shares would be counted as present for purposes of determining the
existence of a quorum. Similarly, any broker non-votes (which occur when shares
held by brokers or nominees for beneficial owners are voted on some matters but
not on others in the absence of instructions from the beneficial owner) are not
considered to be votes cast and therefore would have no effect on the outcome of
the election of directors, although they would be counted for quorum purposes.
The affirmative vote of a majority of the votes cast is required to
ratify the selection of PricewaterhouseCoopers LLP as the independent registered
public accounting firm for the Company for the fiscal year ending December 31,
2005. Abstentions and any broker non-votes are not considered to be votes cast
and therefore would have no effect on the outcome of this proposal.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table, with notes thereto, sets forth as of April 4, 2005
certain information regarding the Common Stock held by (i) the persons known to
the Company to own beneficially more than 5% of the Company's Common Stock, (ii)
each director of the Company, (iii) each executive officer of the Company, and
(iv) all directors and executive officers of the Company as a group. Unless
otherwise indicated immediately beneath the beneficial owner's name, the address
of each beneficial owner listed in the table below is c/o Performance
Technologies, Incorporated, 205 Indigo Creek Drive, Rochester, New York 14626.
Shares Beneficially Owned
-------------------------
Name of Beneficial Amount and Nature
Owner of Beneficial Ownership Percent of Class (1)
FMR Corp. 1,558,700(2) 12.1%
82 Devonshire Street,
Boston, MA 02109
Bank of America Corporation 1,203,096(3) 9.4%
100 North Tryon St., Floor 25,
Bank of America Corporate Center,
Charlotte, NC 28255
Charles E. Maginness 637,860(4) 5.0%
John M. Slusser 388,511(5) 3.0%
Donald L. Turrell 317,352(6) 2.5%
William E. Mahuson 248,460(7) 1.9%
Bernard Kozel 224,144(8) 1.7%
Dorrance W. Lamb 195,289(9) 1.5%
John J. Grana 143,550(10) 1.1%
John J. Peters 123,602(11) *
Stuart B. Meisenzahl 43,250(12) *
Robert L. Tillman 31,667(13) *
E. Mark Rajkowski 20,350(14) *
All Directors and Officers as a Group
(11 persons) 2,374,035(15) 18.5%
-------------------------
* Less than 1%.
(1) Percentage based upon 12,852,679 shares of Common Stock outstanding as
of April 4, 2005.
(2) The following information is derived from Amendment No. 8 to Schedule
13G dated February 14, 2005 filed by FMR Corp. Fidelity Management &
Research Company ("FMRC"), a wholly-owned subsidiary of FMR Corp, is the
beneficial owner of 1,558,700 shares as a result of acting as investment
advisor to various investment companies. The ownership of one investment
company, FA Value Strategies Fund, amounted to 1,223,100 shares. Edward
C. Johnson 3d, FMR Corp., through its control of Fidelity, and the
various Fidelity Funds each has sole power to dispose of the 1,558,700
shares owned by the Fidelity Funds. Neither FMR Corp. nor Edward C.
Johnson 3d, Chairman of FMR Corp., has the sole power to vote or direct
the voting of the shares owned directly by the Fidelity Funds, which
power resides with the Funds' Boards of Trustees. FMRC carries out the
voting of the shares under written guidelines established by the Funds'
Boards of Trustees.
(3) The following information is derived from Amendment No. 5 to Schedule
13G dated February 11, 2005 filed by Bank of America Corporation. Fleet
National Bank, Columbia Management Group, Inc. and Columbia Management
Advisors, Inc. are the listed subsidiaries which acquired the security
being reported by the parent holding company. Bank of America
Corporation has shared dispositive power over 1,203,096 shares and
shared power to vote or to direct the voting of 1,178,248 shares. Fleet
National Bank has shared dispositive power over 1,005,600 shares, sole
dispositive power over 197,496 shares with sole power to vote or direct
the voting of 179,848 shares and shared voting power over 998,400
shares. Columbia Management Group, Inc. has shared dispositive power
over 1,005,600 shares and shared voting power over 998,400 shares.
Columbia Management Advisors, Inc. has sole dispositive power over
1,005,600 shares and sole voting power over 998,400 shares.
(4) Includes (a) 40,000 shares of Common Stock issuable upon exercise of
options currently exercisable; and (b) 93,247 shares of Common Stock
owned of record by Mr. Maginness' wife. Mr. Maginness disclaims
beneficial ownership of the shares owned by his wife.
(5) Includes (a) 22,250 shares of Common Stock issuable upon exercise of
options currently exercisable; and (b) 15,000 shares of Common Stock
owned of record by Mr. Slusser as custodian for his minor children
living in his household.
(6) Includes (a) 273,350 shares of Common Stock issuable upon exercise of
options currently exercisable; (b) 42,502 shares owned jointly by Mr.
Turrell and his wife; and (c) 1,500 shares of Common Stock owned of
record by Mr. Turrell's wife as custodian for their child. Mr. Turrell
disclaims beneficial ownership of the shares owned by his wife as
custodian for their child. Excludes 8,750 shares of Common Stock
issuable upon exercise of options not yet vested.
(7) Includes 102,500 shares of Common Stock issuable upon exercise of
options currently exercisable.
(8) Includes (a) 30,000 shares of Common Stock issuable upon exercise of
options currently exercisable and 189,144 shares of Common Stock owned
of record by The Kozel Holding Company, LLC, over which Mr. Kozel has
voting and investment power.
(9) Includes 145,973 shares of Common Stock issuable upon exercise of
options currently exercisable. Excludes 6,250 shares of Common Stock
issuable upon exercise of options not yet vested.
(10) Includes (a) 141,250 shares of Common Stock issuable upon exercise of
options currently exercisable; and (b) 150 shares of Common Stock owned
of record by Mr. Grana's wife as custodian for their child living in
their household. Excludes 5,000 shares of Common Stock issuable upon
exercise of options not yet vested.
(11) Includes 121,300 shares of Common Stock issuable upon exercise of
options currently exercisable. Excludes 6,250 shares of Common Stock
issuable upon exercise of stock options not yet vested.
(12) Includes 40,000 shares of Common Stock issuable upon exercise of options
currently exercisable.
(13) Includes 20,000 shares of Common Stock issuable upon exercise of options
currently exercisable.
(14) Includes 20,000 shares of Common Stock issuable upon exercise of options
currently exercisable.
(15) Includes 956,623 shares of Common Stock issuable upon exercise of stock
options currently exercisable. Excludes 26,250 shares of Common Stock
issuable upon exercise of stock options not yet vested.
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors is divided into three classes. The Company
currently has seven directors, three in one class and two in two classes, a
majority of whom are independent under the Nasdaq listing standards. Terms are
staggered so that only one class is elected at each Annual Meeting of
Stockholders. Each director so elected serves for a three-year term and until
his or her successor is elected and qualified, subject to such director's
earlier death, resignation or removal.
The Board of Directors recommends the election of the three nominees
named below, each of whom are currently directors of the Company. The Board of
Directors does not contemplate that any of the nominees will be unable to serve
as a director, but if that contingency should occur prior to the voting of the
proxies, the persons named in the enclosed proxy reserve the right to vote for
such substitute nominee or nominees as they, in their discretion, shall
determine.
Information about the Directors
The following table sets forth certain information with respect to the
directors of the Company who are being proposed for re-election at the Meeting
for a three-year term expiring in 2008.
PROPOSED FOR ELECTION AS DIRECTORS AT THE 2005 ANNUAL MEETING
FOR A THREE-YEAR TERM EXPIRING IN 2008
Director
Name and Background Since
Bernard Kozel, age 83, has served as a director of the Company since
1983. He is the former Chairman of the Board of J. Kozel & Son, a 1983
Rochester, New York-based structural steel company. He is President of
K.G. Capital Corporation.
Charles E. Maginness, age 72, served as Chairman of the Board from
1986 to 2001 and served as Chief Executive Officer of the Company from 1983
1995 to 1997.
E. Mark Rajkowski, age 46, Senior Vice President and Chief Financial
Officer of MeadWestvaco Corporation, has served as director of the 2003
Company since August 2003. From December 2003 to August 2004, Mr.
Rajkowski was Vice President and General Manager, Worldwide Operations,
Digital Film and Imaging Systems Business, Eastman Kodak Company. From
January 2003 to December 2003, he held the position of Chief Operating
Officer of Kodak's Digital and Applied Imaging Division. From 2001 to
2003, he held the position of Vice President of Finance for Eastman
Kodak and from 1998 until 2001, he held the position of Corporate
Controller for Eastman Kodak.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 1
The following table sets forth certain information with respect to each
director of the Company whose term in office does not expire at the Meeting.
DIRECTORS WHOSE TERMS DO NOT EXPIRE
AT THE 2005 ANNUAL MEETING
Director
Name and Background Since
Stuart B. Meisenzahl, age 63, has served as a director of the Company
since 2001. He is a former partner in the law firm of Harter, Secrest & 2001
Emery LLP, general counsel to the Company. He was affiliated with the
firm for 36 years, retiring in 1999, and he practiced principally in
the areas of federal securities law and biotechnology licensing.
Following his retirement, Mr. Meisenzahl has acted as a business
consultant to a number of biotechnology companies and is Acting General
Counsel to Vaccinex, Inc., a biotechnology company in Rochester, New
York. In addition, he has served as director or trustee of a number of
charitable organizations in Rochester, New York.
John M. Slusser, age 52, a founder of the Company, has served as
Chairman of the Board since June 2001, as a director since the Company's 1981
inception in 1981 and as the Company's Chief Strategic Officer since
January 2003. From 1981 through 1995, he held various positions within
the Company, including President and Chief Executive Officer. From 1995
until 2000, he served as Chairman of the Board of InformationView
Solutions Corporation and from 1995 to 1999 he served as that company's
Chief Executive Officer. Since 2000, he has served as President of Radio
Daze LLC.
Robert L. Tillman, age 57, is an independent business consultant. From
2000 to 2002, he served as General Manager in Intel's Embedded Intel 2003
Architecture Division, where he was responsible for the operations of
Ziatech Corporation. From 1997 to 2000 he held the position of President
of Ziatech Corporation.
Donald L. Turrell, age 57, has served as Chief Executive Officer of the
Company since 1997, and President and Chief Operating Officer since 1995. 1995
From 1985 to 1990, he held the position of Vice President of Sales and
Marketing and, from 1990 to 1993, he held the position of Vice President
and General Manager of the Workstation Products business unit. From 1993
to 1995, he held the position of President of the Company's Performance
Computer business unit. From 1977 to 1984, Mr. Turrell held various
positions with Rochester Instrument Systems, including Sales Manager,
Product Marketing Manager, Vice President of Sales and Vice President
of Marketing.
Committees of the Board of Directors
The Board has a Compensation Committee to evaluate executive
compensation and to determine grants pursuant to the Company's stock-based
incentive plans. Messrs. Maginness, Meisenzahl, and Tillman currently comprise
the Compensation Committee. All members of the Compensation Committee qualify as
being "independent" under the independence standards of the Nasdaq listing
standards. For purposes of complying with Securities Exchange Act Rule 16b-3,
the Company has at least two non-employee directors administer its stock-based
incentive plans.
The Board has an Audit Committee for the purpose of reviewing the
Company's financial reporting procedures. Messrs. Meisenzahl, Rajkowski and
Tillman currently comprise the Audit Committee. The updated written charter for
the Audit Committee, which was adopted by the Board of Directors, more
specifically sets forth the duties of the Audit Committee and is attached as
Appendix A. All of the members of the Audit Committee have the required
"financial literacy" and qualify as being "independent" under the independence
standards of the Nasdaq listing standards and applicable SEC rules. In addition,
the Board has determined that Mr. Rajkowski qualifies as an "audit committee
financial expert" under applicable SEC rules.
The Board of Directors has a Nominating Committee to identify potential
new directors. The Nominating Committee has a written charter, which is
available in the Investors section of the Company's Web site at www.pt.com and
it sets forth the duties of the Nominating Committee more specifically. Messrs.
Kozel, Maginness and Tillman currently comprise the Nominating Committee. Each
member is "independent," as independence for nominating committees is defined
under the Nasdaq listing standards.
The Nominating Committee believes that candidates for director should
have certain minimum qualifications including the ability to read and understand
basic financial statements and each should possess the highest personal
integrity and ethics.
The Nominating Committee also considers such factors as:
o possessing relevant expertise to offer advice and guidance to management;
o having sufficient time to devote to the affairs of the Company;
o demonstrating excellence in his or her field;
o having sound business judgment; and
o having the commitment to rigorously represent the long-term interests of
the Company's stockholders.
New candidates for director nominees are reviewed in the context of the
current composition of the Board, the operating requirements of the Company and
the long-term interests of the Company's stockholders. In conducting this
assessment, the Nominating Committee considers diversity, maturity, skills, and
such other factors, as it deems appropriate given the current needs of the Board
and the Company, to maintain a balance of knowledge, experience and capability.
In the case of incumbent directors whose terms of office are set to expire, the
Nominating Committee reviews such directors' overall service to the Company
during their term, including the number of meetings attended, level of
participation, quality of performance, and any other relationships and
transactions that might impair such directors' independence. In the case of new
director candidates, the Nominating Committee also determines whether the
nominee is independent, which determination is based upon applicable Nasdaq
listing standards, applicable SEC rules and regulations and the advice of
counsel, if necessary. The Nominating Committee then uses its network of
contacts to compile a list of potential candidates, but may also engage, if it
deems appropriate, a professional search firm. The Nominating Committee conducts
any appropriate and necessary inquiries into the backgrounds and qualifications
of possible candidates after considering the function and needs of the Board.
The Nominating Committee meets to discuss and consider such candidates'
qualifications and then selects a nominee for recommendation to the Board by
majority vote. To date, the Nominating Committee has not paid a fee to any third
party to assist in the process of identifying or evaluating director candidates.
To date, the Nominating Committee has not received, and therefore has not
rejected, a timely director nominee from a stockholder or stockholders holding
more than 5% of the Company's voting stock.
The Nominating Committee will consider director candidates recommended
by stockholders. The Committee does not intend to alter the manner in which it
evaluates candidates, including the minimum criteria set forth above, based on
whether the candidate was recommended by a stockholder. Stockholders who wish to
recommend individuals for consideration by the Nominating Committee to become
nominees for election to the Board may do so by delivering a written
recommendation to the attention of the Nominating Committee at the address set
forth on the cover of this Proxy Statement. Submissions must include the full
name of the proposed nominee, a description of the proposed nominee's business
experience for at least the previous five years, complete biographical
information, a description of the proposed nominee's qualifications as a
director and a representation that the nominating stockholder is a beneficial or
record owner of the Company's stock. In addition, any such submission must be
accompanied by the written consent of the proposed nominee to be named as a
nominee and to serve as a director if elected.
The Compensation Committee, Audit Committee, and Nominating Committee
met five, eight, and one time, respectively, in 2004. The Company's Board of
Directors held nine meetings in 2004. All of the directors attended at least 75
percent of the Board of Directors' meetings and committee meetings that required
their attendance. As required by the Nasdaq listing standards, it is the policy
of the Board of Directors that the independent members of the Board meet
regularly at executive sessions at which only independent directors are present.
The independent directors select from, among their number, a single director to
serve as the presiding director during their executive sessions. The Company
believes that it is important for its directors to attend the Annual Meeting of
Stockholders and expects them to do so each year, barring unforeseen
circumstances. All of the Company's directors attended the 2004 Annual Meeting
of Stockholders.
Compensation of Directors
Members of the Board of Directors who are not employees of the Company
receive $1,000 for each meeting attended. Each Board member also receives
$15,000 per year if he attends at least 75 percent of the scheduled Board of
Director meetings. In addition, each committee member receives $400 for each
committee meeting attended. Annual retainers are also paid to committee members
acting in various capacities as follows: Audit Committee chairman $5,000, Audit
Committee member $2,500; Compensation Committee chairman $2,500, Compensation
Committee member $1,250; Nominating Committee chairman $1,500, Nominating
Committee member $750; Board Secretary, if non-employee, $1,000; and Board
Chairman, if outside Director, $10,000. The Company's 2001 Stock Option Plan
currently provides that on the day of the Company's Annual Meeting of
Stockholders, each individual elected, reelected or continuing as an Outside
Participating Director will automatically receive a non-statutory option for
10,000 shares of Common Stock. The exercise price for these options will be the
fair market value of the Company's Common Stock on the date of the option grant.
Options vest on the first anniversary of the grant date and expire five years
from the date of grant. From time to time, the Company may grant restricted
stock or additional options to directors. At the 2004 Annual Meeting of
Stockholders, Messrs. Kozel, Maginness, Meisenzahl, Rajkowski, and Tillman each
received a non-qualified option to purchase 10,000 shares at an exercise price
of $10.06 per share.
EXECUTIVE OFFICERS
The Company is currently served by the following executive officers,
who are elected annually by the Board of Directors and serve until their
successors are elected and qualify.
Executive
Name and Background Officer
Since
John J. Grana, age 49, has served as Vice President, Engineering since
1994. From 1997 to 2000, he held the position of Vice President and 2000
General Manager of the Controller Products Group. From 1994 to 1997, he
held the position of Vice President of Software Engineering. From 1990
to 1994, he held the position of Technical Director of the Workstation
Products business unit, and from 1986 to 1990, he served in various
engineering positions. Prior to joining the Company, he held various
engineering positions with Computer Consoles, Inc. (now a division of
Nortel Networks). Mr. Grana holds a BS degree in computer science from
Rochester Institute of Technology.
Dorrance W. Lamb, age 57, has served as Chief Financial Officer of the
Company since 1995 and as Vice President of Finance since 1992. Prior 1995
to joining the Company, he was Senior Vice President for Finance and
Administration at Infodata Systems, Inc. based in Fairfax, Virginia.
Mr. Lamb is a certified public accountant and holds a BS degree in
accounting from Benjamin Franklin University.
William E. Mahuson, age 54, has served as Vice President since 1987.
From 1987 to 1990, he served as Vice President, Engineering and from 1987
1992 to 1995 he served as General Manager of the UconX business unit of
the Company. Prior to joining the Company, he held various technical and
technical management positions with Computer Consoles, Inc. (now a
division of Nortel Networks) and the Xerox Corporation. Mr. Mahuson
holds a BS degree in electrical engineering from Rensselaer Polytechnic
Institute.
John J. Peters, age 46, has served as Vice President, Engineering since
1994. From 1997 to 2000, he held the position of Vice President of 2000
Development, Network Switching Products. From 1994 to 1997, he held the
position of Vice President of Hardware Engineering. From 1990 to 1994,
he served as Technical Director of the Hardware Products business unit,
and from 1986 to 1990, he served in various engineering positions. Prior
to joining the Company, he held various engineering positions with
Computer Consoles, Inc. (now a division of Nortel Networks). Mr. Peters
holds a BS degree in engineering from the Rochester Institute of
Technology.
Donald L. Turrell, age 57, has served as Chief Executive Officer of the
Company since 1997. Further information about Mr. Turrell is set forth 1985
under "DIRECTORS WHOSE TERMS DO NOT EXPIRE AT THE 2005 ANNUAL MEETING"
above.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's officers and
directors and persons who own more than 10% of a registered class of the
Company's equity securities to file certain reports regarding ownership of, and
transactions in, the Company's securities with the Securities and Exchange
Commission (the "SEC"). Such officers, directors, and 10% stockholders are also
required by SEC rules to furnish the Company with copies of all Section 16(a)
reports that they file.
Based solely on its review of such reports furnished to the Company and
written representations from certain reporting persons, the Company believes
that the Company's executive officers, directors and more than 10% stockholders
timely filed all Section 16(a) reports required to be filed by them during the
most recent fiscal year except for one filing. On February 25, 2004, Mr.
Maginness reported the sale of 50,000 shares of Common Stock that he sold on
February 17, 2004.
Report of the Compensation Committee with Respect to Executive Compensation
General
-------
The Compensation Committee of the Board of Directors is responsible for
setting the Company's executive compensation policy. The Committee is currently
comprised of three outside directors, Charles E. Maginness, Chairman, Stuart B.
Meisenzahl, and Robert L. Tillman, who are not employees of the Company and are
not eligible to participate in the Company's executive compensation program. All
members of the Committee qualify as being "independent" under the independence
standards of the Nasdaq listing standards.
The Company's executive compensation program is designed to serve the
Company's broader strategic goals of profitable growth and the creation of
long-term stockholder value. The program is fundamentally a pay-for-performance
program designed to:
o ensure the Company's ability to attract and retain executives;
o strongly align the interests of the Company's executives with those of
its stockholders; and
o provide a compensation package that balances individual contributions
and overall business results.
From time to time, the Committee selects, and when it deems appropriate
is advised by, an independent executive compensation consultant to assist in
evaluating the components of the executive compensation program.
The three key components of the Company's executive compensation
program are base salary, short-term incentive awards (cash bonus) and long-term
incentive awards (stock-based awards).
Base Salary. Annually, the Committee assesses a number of factors in
fixing the salary of the Chief Executive Officer, and assesses and approves, a
salary plan developed by the Chief Executive Officer for all the Company's
executives, none of whom have a written employment agreement with the Company.
The salary plan considers a number of factors including the individual's
position, job responsibilities and performance.
Annual Short-term Incentive Awards. The Company's annual short-term
incentive awards program is intended to be variable and is directly related to
the Company's financial performance. Annual incentive goals are established for
the Company's executives and key employees at the beginning of the year.
Quarterly incentive goals are established for the Company's employees at the
beginning of each quarter during the year. Amounts contributed to these
short-term incentive programs directly relate to the Company's financial
performance.
Long-term Incentive Awards. The Committee believes that the Company's
long-term incentive awards, which are primarily stock-based compensation, align
the interest of the Company's executives and employees with that of the
stockholders, as any appreciation in the price of the stock will benefit all
stockholders commensurately. Historically, stock-based compensation has
primarily been in the form of stock options. Stock options provide executives
and employees with the opportunity to purchase Common Stock of the Company,
increase their equity in the Company and to share in the appreciation in the
value of the stock. Under the Performance Technologies, Incorporated 2001 Stock
Option Plan and 2003 Omnibus Incentive Plan, which have been approved by the
stockholders, the Committee may grant stock options to the Company's executives
and employees. The size of stock option awards has been based primarily on the
individual's position, job responsibilities and performance. Stock option awards
are granted at an exercise price equal to the market price of the Company's
Common Stock on the date of grant and generally vest in up to three years. Stock
option awards generally have a term of five years. The actual value of any stock
options granted will depend entirely on the extent to which the Company's Common
Stock has appreciated in value at the time the options are exercised. This
provides an incentive for the executives and employees to create wealth for the
stockholders and provides rewards in proportion to the gain received by other
stockholders. The Company has not repriced outstanding stock options at any time
in the past.
Annually, the Chief Executive Officer prepares a long-term incentive
plan for the Company's executives. The Committee assesses and approves the
long-term incentive plan for each executive.
Executive Officer Compensation
------------------------------
All executive officers received an increase in their base salary in
January 2004. Those increases are reflected in the Summary Compensation Table in
the Executive Compensation section of this report. The Company did not meet the
annual revenue and profitability measurements established in the Short-term
Incentive Program, and therefore, no cash incentive bonuses were paid to the
Company's executives in 2004. Stock options granted for 2004 were issued to
executive officers in April 2004. The individual grants are detailed in the
table titled Option Grants in Last Fiscal Year.
President and Chief Executive Officer
-------------------------------------
Mr. Turrell's base salary, short-term incentive and long-term incentive
awards are determined by the Compensation Committee based upon the same general
factors as those employed by the Compensation Committee for executive officers.
Mr. Turrell's base salary for 2004 was $230,000. Mr. Turrell was granted stock
options for 35,000 shares in April 2004 as part of his compensation plan.
During 2005, the Company expects to hire a new President and Chief
Executive Officer. The Committee expects to revisit its executive compensation
policy as part of this process.
Compensation Committee:
Charles E. Maginness, Chairman
Stuart B. Meisenzahl
Robert L. Tillman
Compensation Committee Interlocks and Insider Participation
The Chief Executive Officer of the Company, Donald L. Turrell, consults
with the Compensation Committee and makes recommendations. He participates in
discussions with the Compensation Committee but does not vote or otherwise
participate in the Compensation Committee's determinations. None of the
Company's executive officers have served as a member of a compensation committee
of a board of directors of any other entity which has an executive officer
serving as a member of the Company's Board of Directors, and there are no other
matters regarding interlocks or insider participation that the Company is
required to report.
EXECUTIVE COMPENSATION
Shown on the table below is information on the annual and long-term
compensation for services rendered to the Company in all capacities for the
fiscal years ended December 31, 2004, 2003 and 2002, paid by the Company to
those persons who were, during the fiscal year ended December 31, 2004 (i) the
Chief Executive Officer of the Company and (ii) the other executive officers of
the Company who earned more than $100,000 during the fiscal year ended December
31, 2004 (the "Named Executives"):
SUMMARY COMPENSATION TABLE
Name and Long Term
Principal Position Annual Compensation(1) Compensation
------------------ --------------------- ------------
Securities
Underlying Restricted
Year Salary Bonus Options(#)(2) Stock(3)
---- ------ ----- ---------- -----
Donald L. Turrell 2004 $230,000 35,000
Chief Executive Officer 2003 $219,693 $150,000 50,000 2,900
and President 2002 $190,772 $ 70,000 35,000
Dorrance W. Lamb 2004 $190,000 25,000
Vice President - Finance 2003 $179,724 $135,000 40,000 2,180
Chief Financial Officer 2002 $153,682 $ 60,000 25,000
William E. Mahuson 2004 $136,250 10,000
Vice President 2003 $129,900 $ 90,000 25,000 1,960
2002 $124,459 $ 55,000
John J. Grana 2004 $157,500 17,500
Vice President 2003 $149,885 $ 90,000 25,000 1,740
2002 $142,301 $ 50,000 20,000
John J. Peters 2004 $157,500 17,500
Vice President 2003 $149,885 $ 90,000 25,000 1,740
2002 $141,652 $ 50,000 25,000
------------------
(1) The Company provides the following perquisites and benefits to certain of
its executive officers: Automobile allowances and expenses, 401(k)
allowances and life insurance. In each case, the aggregate value of those
perquisites and personal benefits does not exceed the lesser of $50,000 or
10% of the executive officer's annual salary and bonus for a given year.
(2) Stock options granted in 2004 were issued to executive officers in April
2004. Stock options granted in 2003 were issued to executive officers in
April 2003, while options granted for 2002 were issued to executive officers
in March 2002.
(3) Restricted stock was granted to the executive officers in June 2003. The
restricted stock was earned and issued in January 2004. The fair market
value of the Company's common stock on the date of issuance was $17.50.
Employment Agreements
The Company does not have employment agreements with any of its
executive officers.
Stock Option Grants and Exercises
The following sets forth information with respect to stock options
granted to the Named Executives during the fiscal year ended December 31, 2004
pursuant to the Performance Technologies, Incorporated 2001 Stock Option Plan
and the Performance Technologies, Incorporated 2003 Omnibus Incentive Plan.
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
-----------------
Potential Realizable
Number of % of Total Value at Assumed Annual
Securities Options Rates of Stock Price
Underlying Granted to Exercise Appreciation for Option
Options Employees in Price Expiration Term (2)
Name Granted Fiscal Year ($/Share) Date 5% ($) 10% ($)
---- ------- ----------- --------- ------ ------ -------
Donald L. Turrell 35,000(1) 5.9% $18.129 4/9/09 $175,316 $387,371
Dorrance W. Lamb 25,000(1) 4.2% $18.129 4/9/09 $125,226 $276,694
William E. Mahuson 10,000(1) 1.7% $18.129 4/9/09 $ 50,090 $110,678
John J. Grana 17,500(1) 3.0% $18.129 4/9/09 $ 87,658 $193,686
John J. Peters 17,500(1) 3.0% $18.129 4/9/09 $ 87,658 $193,686
(1) These options originally vested in three annual installments of thirty-three
percent, sixty-six percent and one hundred percent per year commencing on
the first anniversary of the grant date. On March 25, 2005, the vesting of
these options was accelerated to fully vested on that date. Option shares
consist of both non-qualified and qualified stock options.
(2) Amounts represent potential gains that could be achieved for the options
granted in 2004 based on assumed annual growth rates of 5% and 10% in the
price of the Company's Common Stock over the five-year life of the option
(which would equal a total increase in stock price of 28% and 61%,
respectively). Actual gains, if any, will depend upon market conditions and
the Company's future performance and prospects.
The following table sets forth information with respect to the exercise
of stock options by the Named Executives, if any, during the year ended December
31, 2004, and it also sets forth information with respect to status of
unexercised stock options as of December 31, 2004.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
Number of Shares Underlying Value of Unexercised
Unexercised Options at In-The-Money Options at
FY-End (#) FY-End ($) (1)
----------- --------------
Shares Acquired Value
Name on Exercise (#) Realized ($)(2) Exercisable Unexercisable Exercisable Unexercisable
---- --------------- --------------- ----------- ------------- ----------- -------------
Donald L. Turrell 11,650 $ 20,972 229,600 77,500 $698,283 $149,000
Dorrance W. Lamb 17,082 $237,541 109,723 57,500 $280,962 $118,000
William E. Mahuson 7,500 $ 37,325 80,000 22,500 $343,868 $ 67,500
John J. Grana 10,000 $149,722 121,250 40,000 $325,993 $ 75,500
John J. Peters 95,050 42,500 $227,457 $ 77,500
(1) Represents the difference between the fair market value of the Common Stock
as of December 31, 2004 and the exercise price of the option. Options that
are not in the-money have been excluded from the computation.
(2) Represents the difference between the fair market value of the Common Stock
underlying the options as of the exercise date and the exercise price of the
options.
Report of the Audit Committee to Stockholders
The Audit Committee of the Board of Directors is currently comprised of
three members of the Company's Board of Directors, each of whom possess the
necessary qualifications pursuant to Nasdaq rules and regulations and is
independent pursuant to the Nasdaq National Market's listing standards and in
accordance with SEC rules. The Audit Committee operates under a written charter
which is included in Appendix A. Among other things, the Audit Committee
recommends to the Board that the Company's audited financial statements be
included in the Annual Report on Form 10-K and recommends the selection of the
independent registered public accounting firm to audit the Company's books and
records. The Audit Committee met eight times during 2004 and held five executive
sessions with PricewaterhouseCoopers LLP, the Company's independent registered
public accounting firm. The Audit Committee has:
o reviewed and discussed, with the Company, all of the regulatory changes
occurring during the past year including subsequent requirements
related to the Sarbanes-Oxley Act of 2002 and new Securities and
Exchange Commission and NASD requirements;
o reviewed and discussed the Company's audited financial statements for
2004 with management and with PricewaterhouseCoopers
LLP;
o reviewed and discussed management's selection, application
and disclosure of critical accounting policies;
o reviewed and discussed the adequacy of the Company's internal controls
and accounting and financial personnel;
o discussed with PricewaterhouseCoopers LLP the matters required to be
discussed by SAS 61, as amended (Codification for Statements on
Auditing Standards);
o discussed the process used by management in formulating accounting
estimates and the basis for the registered public accounting firm's
conclusions regarding the reasonableness of those estimates; and
o received and discussed the written disclosures and the letter from the
independent registered public accounting firm required by Independence
Standards Board Statement No. 1 (Independent Discussions with Audit
Committees) and has discussed with the independent registered public
accounting firm the independent registered public accounting firm's
independence.
Based on such review and discussions with management and the
independent registered public accounting firm, the Audit Committee recommended
to the Board of Directors that the audited financial statements be included in
the Company's Annual Report on Form 10-K for 2004 for filing with the SEC.
Prior to approving PricewaterhouseCoopers LLP as the Company's
independent registered public accounting firm for 2005, the Audit Committee
considered whether PricewaterhouseCoopers LLP's provision of other than audit
services is compatible with maintaining the registered public accounting firm's
independence and has concluded that PricewaterhouseCoopers LLP meets the
independence standards.
Audit Committee:
E. Mark Rajkowski, Chairman
Stuart B. Meisenzahl
Robert L. Tillman
Audit Fees and All Other Fees
Audit Fees: PricewaterhouseCoopers LLP billed fees to the Company for
fiscal years 2004 and 2003 of $176,000 and $67,000, respectively, for the audit
of the Company's annual financial statements, including services required under
the Sarbanes-Oxley Act of 2002 and review of Quarterly Reports on Form 10-Q.
Audit-Related Fees: PricewaterhouseCoopers LLP billed the Company
$21,000 and $0 in 2004 and 2003, respectively. Fees in 2004 relate to certain
regulatory filings and consulting services.
Tax-Related Fees: PricewaterhouseCoopers LLP billed $38,000 and $32,000
for tax-related services in 2004 and 2003, respectively. Fees paid in 2004 and
2003 related to compliance services.
All Other Fees: PricewaterhouseCoopers LLP billed no other fees in 2004
and 2003.
All audit, audit-related and tax fees paid in 2004 and 2003 were
approved by the Audit Committee.
Effective in 2003, the Audit committee established the following
guidelines for securing non-audit services.
o The Chairperson for the Committee can authorize management in advance
to secure non-audit services costing up to $25,000 provided the
Committee is informed on a timely basis of such commitment.
o The Committee must pre-approve each non-audit service that is expected
to cost in excess of $25,000.
Code of Business Conduct and Ethics
The complete Code of Business Conduct and Ethics is available in the
Investors section of the Company's Web site at www.pt.com.
Stock Performance Graph
The following graph compares the cumulative total return on the
Company's Common Stock at the end of each calendar year since December 31, 1999
to the Nasdaq Stock Market (U.S.) Index, and the Nasdaq Computer Manufacturer
Index. The stock performance shown in the graph below is not intended to
forecast or necessarily be indicative of future performance.
[GRAPHIC OMITTED]
PROPOSAL 2
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The firm of PricewaterhouseCoopers LLP served as the independent
registered public accounting firm of the Company for the fiscal year ended
December 31, 2004 and the Board of Directors has again selected
PricewaterhouseCoopers LLP as the Company's independent registered public
accounting firm for the fiscal year ending December 31, 2005. This selection
will be presented to the stockholders for their ratification at the Meeting. The
Board of Directors recommends a vote in favor of the proposal to ratify this
selection and (unless otherwise directed therein) it is intended that the shares
represented by the enclosed properly executed proxy will be voted FOR such
proposal. If the stockholders do not ratify this selection, the Board of
Directors may reconsider its choice.
A representative of PricewaterhouseCoopers LLP is expected to be
present at the Meeting. The representative will be given an opportunity to make
a statement if he so desires and will be available to respond to appropriate
questions concerning the audit of the Company's financial statements.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2
STOCKHOLDER COMMUNICATIONS
The Board of Directors has established a process for stockholders to
communicate with members of the Board. To communicate with the Board, or a
member of the Board, stockholders should send their communications, in writing,
to the attention of the Company's Corporate Secretary at the address shown on
the cover of this Proxy Statement. The Corporate Secretary will forward
stockholder communications to the Board or Board members, as appropriate, unless
it is determined by the Corporate Secretary that a communication is frivolous or
has been made by a stockholder in bad faith.
STOCKHOLDER PROPOSALS FOR 2006 ANNUAL MEETING
In order for any stockholder proposal to be included in the Company's
Proxy Statement to be issued in connection with the 2006 Annual Meeting of
Stockholders, such proposal must be delivered to the Company no later than
December 31, 2005. If the proposal is in compliance with all of the requirements
of Rule 14a-8 under the Securities Exchange Act, the Company will include the
stockholder proposal in its proxy statement and place it on the form of proxy
issued for the 2006 Annual Meeting of Stockholders. Stockholder proposals that
are not submitted for inclusion in the Company's proxy materials pursuant to
Rule 14a-8 under the Securities Exchange Act may be brought before the 2006
Annual Meeting of Stockholders only if written notice of the proposal is
delivered to the Company's Secretary no earlier than March 6, 2006 and no later
than April 5, 2006, and if the stockholder complies with all of the other
provisions of Article II, Section 12 of the Company's By-laws. All such notices
should be delivered to Stuart B. Meisenzahl, Secretary of Performance
Technologies, Incorporated, 205 Indigo Creek Drive, Rochester, New York 14626.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors does not
intend to present, and has not been informed that any other person intends to
present, any matter other than those specifically referred to in this Proxy
Statement. If any other matters properly come before the Meeting, it is intended
that the holders of the proxies will act in respect thereto in accordance with
their best judgment.
By Order of the Board of Directors,
/s/ Stuart B. Miesenzahl
Stuart B. Meisenzahl
Secretary to the Board
Dated at Rochester, New York
May 2, 2005
Appendix A
PERFORMANCE TECHNOLOGIES, INC.
AUDIT COMMITTEE CHARTER
Mission Statement
The Audit Committee (the "Committee") will, on behalf of the Board of Directors
(the "Board"), have responsibility for oversight of reliable financial
reporting, effective internal controls, compliance with regulatory matters, and
compliance with appropriate ethical conduct.
In performing its duties, the Committee will maintain effective working
relationships with the Board, management and the independent registered public
accounting firm. To effectively perform his or her role, each Committee member
will obtain an understanding of the detailed responsibilities of Committee
membership as well as the business, operations, and risks of Performance
Technologies, Inc. (the "Company").
Organization
The Committee will be comprised of three or more directors as
determined from time to time by the Board, each of whom will be independent as
determined by the Board in accordance with the applicable rules of Nasdaq, the
Securities and Exchange Commission ("SEC") and the Sarbanes-Oxley Act.
The Board may, under exceptional and limited circumstances, act in the
best interests of the Company and its stockholders by appointing a Committee
member who is not an independent director; provided, however, the member shall
not be a current employee of the Company or a family member of an employee of
the Company. In such an instance, the Board shall disclose in its annual proxy
statement the nature of the relationship and the reason(s) for appointing such
individual as a Committee member. However, a member appointed under this
exception may not serve more than two years and may not chair the Committee.
All members of the Committee must be able to read and understand fundamental
financial statements, including the Company's balance sheet, income statement
and cash flow statement. The Committee has, and will continue to have, at least
one member who has accounting or related financial management expertise such as
that gained from past employment in finance or accounting, professional
certification in accounting, or other comparable experience or background such
as being, or having been, a chief executive officer, chief financial officer or
other senior officer with financial oversight responsibilities, and who shall be
an "audit committee financial expert" as defined by the SEC.
Meetings
Committee meetings will generally coincide with regular Board meetings. Topics
at scheduled meetings will generally include:
o Review of the Annual and Quarterly Reports to be submitted to the SEC;
and
o Meetings with the independent registered public accounting firm to
discuss the scope of the annual audit and to review the financial
statements for the year and the results of the audit.
Roles and Responsibilities
Internal Control
----------------
o Evaluate whether management is setting the appropriate tone at the top
by communicating the importance of internal control and ensuring that
all individuals possess an understanding of their roles and
responsibilities;
o Establish procedures for (i) the receipt, retention, and treatment of
complaints received by the Company regarding accounting, internal
accounting controls, or auditing matters, and (ii) the confidential,
anonymous submission by employees of the Company of concerns regarding
questionable accounting or auditing matters;
o Focus on the extent to which the independent registered public
accounting firm reviews computer systems and applications, and the
security of such systems and applications;
o Gain an understanding of whether internal control recommendations made
by the independent registered public accounting firm have been
implemented by management; and
o Ensure that the independent registered public accounting firm keeps the
Committee informed about fraud, illegal acts, deficiencies in internal
control, and certain other matters.
Financial Reporting
General
-------
o Review significant accounting and reporting issues, including recent
professional and regulatory pronouncements, and understand their impact
on the financial statements; and
o Ask management and the external registered public accounting firm about
significant risks and exposures and the plans to minimize such risks.
o Discuss earnings press releases and financial information and earnings
guidance provided to analysts and rating agencies.
Annual Financial Statements
---------------------------
o Review the annual consolidated financial statements and determine
whether they are complete and consistent with the information known to
Committee members, and assess whether the financial statements reflect
appropriate accounting principles;
o Pay particular attention to complex and/or unusual transactions such as
restructuring charges and derivative disclosures;
o Focus on judgmental areas such as those involving valuation of assets
and liabilities, including, for example, the accounting and disclosure
of obsolete or slow-moving inventory; receivable losses; software
capitalization and amortization; warranty liability; litigation
reserves; and other commitments and contingencies;
o Meet with management and independent registered public accounting firm
to review the financial statements and the results of the audit;
o Consider management's handling of proposed audit adjustments identified
by the independent registered public accounting firm;
o Review the MD&A and other sections of the Annual Report before its
release and consider whether the information is adequate and consistent
with members' knowledge about the Company and its operations; and
o Ensure that the independent registered public accounting firm
communicates certain required matters to the Committee.
Interim Financial Statements
----------------------------
o Be briefed on how management develops and summarizes quarterly
financial information, the extent to which the independent registered
public accounting firm reviews quarterly financial information, and
whether that review is performed on a pre- or post-issuance basis;
o Meet with management to review the interim financial statements and the
results of the review. (This may be done by the Committee chairperson
or the entire Committee);
o To gain insight into the fairness of the interim statements and
disclosures, obtain explanations from management on whether:
o Actual financial results for the quarter varied significantly from
projected results;
o Generally accepted accounting principles have been consistently
applied;
o There are any actual or proposed changes in accounting or financial
reporting practices;
o There are any significant or unusual events or transactions;
o The Company's financial and operating controls are functioning
effectively;
o The Company has complied with the terms of loan agreements or
security indentures; and
o The interim financial statements contain adequate and appropriate
disclosures.
o Ensure that the independent registered public accounting firm
communicates certain required matters to the Committee, as is
necessary.
Compliance with Laws and Regulations
------------------------------------
o Review the effectiveness of the system for monitoring compliance with
laws and regulations and the results of management's investigation and
follow-up (including disciplinary action) on any fraudulent acts or
accounting irregularities;
o Periodically obtain updates from management, general counsel, and tax
advisors regarding compliance;
o Be satisfied that all regulatory compliance matters have been
considered in the preparation of the financial statements; and
o Review the findings of any examinations by regulatory agencies such as
the SEC.
Compliance with Ethical Conduct
-------------------------------
o Evaluate whether management is setting the appropriate tone at the top
by communicating the importance of ethical conduct to the organization;
and
o Periodically obtain updates from management regarding compliance.
External Audit
--------------
o Be directly responsible for the appointment, compensation, retention
and oversight of the work of any public accounting firm engaged for the
purpose of preparing or issuing an audit report or performing other
audit, review or attest services for the Company, with the
understanding that each public accounting firm must report directly to
the Committee;
o Understand the independent registered public accounting firm's proposed
audit scope and approach;
o Review the performance of the independent registered public accounting
firm; and
o Review and confirm the independence of the independent registered
public accounting firm by reviewing the non-audit services provided and
the registered public accounting firm's assertion of their independence
in accordance with professional standards.
Non-Audit Services
------------------
o The Chairperson for the Committee can authorize the Company in advance
to secure non-audit services costing up to $25,000 provided the
Committee is informed on a timely basis of such commitment.
o The Committee must pre-approve each non-audit service that is expected
to cost in excess of $25,000.
Other Responsibilities
----------------------
o Meet with the independent registered public accounting firm, and
management in separate executive sessions to discuss any matters that
the Committee or these groups believe should be discussed privately;
o Ensure that significant findings and recommendations made by the
independent registered public accounting firm are received and
discussed on a timely basis;
o Review, with the Company's counsel, any legal matters that could have a
significant impact on the Company's financial statements;
o If necessary, institute special investigations and, if appropriate,
hire special counsel or experts to assist;
o Authorize, when deemed necessary to carry out the duty of the
Committee, the engagement of independent counsel and other advisors.
o Ensure that appropriate funding is made available for payment of (i)
compensation to any registered public accounting firm engaged for the
purpose of preparing or issuing an audit report, or performing other
audit, review or attest services for the Company, (ii) compensation to
any advisors employed by the Committee, and (iii) ordinary
administrative expenses of the Committee that are necessary or
appropriate in carrying out its duties.
o Perform other oversight functions as requested by the full Board; and
o Review, reassess the adequacy of, and update the charter on an annual
basis; receive approval of changes from the Board.
Reporting Responsibilities
--------------------------
o Regularly update the Board about Committee activities and make
appropriate recommendations.